Archive for the ‘Book reviews’ Category

China held its Central Economic Work Conference last week, chaired by president Xi Jinping, so here are a few thoughts on the current state of the Chinese economy and a few links to an article I have written, and talks I have given, recently about the Chinese economy.

First up, the slogan du jour is definitely ‘new normal’ (新常态). Xi Jinping has been using this for about six months, but now he is really using it. Xinhua’s short, official report on the conference has ‘new normal’ in the headline and ‘new normal’ six times in the text. See here for the English version.

What does it mean? It means that local politicians, state firms, and everybody else should dial back their expectations about credit and growth. The increase in both is slowing and that is the way it is going to be as China undertakes a deleveraging process in the banking and corporate sectors. There is not going to be the kind of collapse in growth that many have predicted. The government has plenty of room to fine tune the slow-down, Chinese exports remain competitive, and the global economic environment, while not great, is not a disaster from the perspective of China’s needs. Look out for reported GDP growth in 2015 between 6-7 percent.

Against this background reforms will continue to increase the extent to which the market prices credit in China’s economy. There has already been a big shift in favour of lending to the private sector since the global financial crisis (see my review of Nicholas Lardy’s new book, below), and this is one aspect of an ongoing financial liberalisation process. To my mind, this explains the recent strong performance of the Chinese stock market much better than claims it is down to an interest rate cut (which wasn’t really a cut at all given falling inflation). Previous run-ups in the Chinese market have coincided with periods of financial sector deregulation. The difference this time I suspect is that the bull market will last longer.

All in all the outlook is a not unattractive one: slower growth, better credit rationing hence higher quality growth, and a rising share for consumption in the economy at the expense of slowing investment. The main risk — as was the case during Zhu Rongji’s long period of ‘structural adjustment’ in the 1990s — is that the central government listens to local politicians who say they cannot maintain ‘social stability’ without more credit and growth. Zhu didn’t listen to such imprecations, and we have to hope Xi won’t either. As the slogan says, China needs and is getting a new normal. Otherwise the books really cannot be balanced and financial system risk will become unmanageable.

Below is a link to download the review of Nick Lardy’s latest book, Markets Over Mao, that I wrote for the latest China Economic Quarterly. The book makes an important contribution to the optimists’ case that China will overcome its current slough of non-performing loans in the banking system.

This next link is to a download of a synopsis of a talk I gave at the Madariaga College of Europe in Brussels (an EU think-tank) a couple of weeks ago. It is about how China’s development model is similar and dissimilar to those of Japan, Korea and Taiwan. The theme will be familiar to anyone who has read How Asia Works, but there are some additional, up-to-date thoughts about China as well as responses to questions raised by the Brussels nomenklatura. The precise topic I was asked to speak on is ‘What can east Asian countries learn from China’s economic policies?’

The Youtube video below is a speech I gave at the National University of Singapore in October (blog entry about that trip here) on the subject of ‘When will governance matter to China’s growth?’ (governance here meaning institutions like a free and fair and prompt judiciary). Roger Cohen of the New York Times speaks first about the role of the US in east Asia. Then I speak at roughly the 25-minute mark. Then there is a joint Q&A.

And here is another Youtube video where I spoke separately about How Asia Works at the National University of Singapore. There is quite a long Q&A in which lots of questions about development from a more Singaporean perspective are addressed.

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I failed to write anything the week ending 18 October despite an interesting trip to participate in the 10th anniversary of the Lee Kwan Yew School of Public Policy at the National University of Singapore. (They invited you, you’re thinking. Yes, they did. As Saul Bellow once wrote: ‘There is nothing too rum to be true.’)

I also had a wonderful side-visit that week across the causeway to Johor Bahru, about which I will say nothing more than that if you have never read Han Suyin’s classic novel And The Rain My Drink, you should get on and do so. The book is particularly recommended for Chinese, Indians, Malays, Japanese and assorted gweilos, all of whom feature amid the chaos of the Emergency in Malaya/Singapore. What is more, there is a new edition, published by Monsoon Books that contains two, new short forewords; one is by Han’s former ‘liberal’ Special Branch husband; and one is by a well-known Malaysian human rights lawyer. The forewords unlock a few secrets about the writing of and background to the book. The copy I picked up in Singapore has the cover contained in the previous link; the copy available on Amazon has a different cover but an online review indicates it has (at least) the additional foreword by Han Suyin’s second husband. The book is not a bad gift.

Aside from the trip to JB (the treatment of hundreds of thousands of Malaysians who cross the border for work each day is pretty shocking on both sides; waiting time is frequently hours), the week in Singapore gave me a chance to speak with a bunch of policy people and a couple of ministers, and so here are a few thoughts about a place I don’t often talk about:

Singapore menu du jour:

1. The Great Unwashed are becoming the Great Ungrateful. In the 2011 election, Harry Lee’s People’s Action Party (PAP) got, by Singapore standards, a kicking, hit by a negative vote swing of almost 7 percentage points which took it down to 60 percent of votes cast. More and more people have had enough of the PAP’s arrogance, its brutal elitism and its lack of the common touch. On top of this there is Singapore’s hideous inequality (Gini of income inequality at a record 0.54), the out-of-control immigration (including horrific numbers of dumb, fat gweilos), and the apparently congenital inability of PAP politicians to think in terms of the population’s interests as a whole. Back in the UK, the PAP makes me think of David Cameron and George Osborne on a really bad day.

2. Never underestimate Harry, or indeed Little Harry. The PAP remains a formidable machine when it comes to co-opting Singapore’s best and brightest. A reasonable example is chipper Minister for Culture, Community and Youth, Lawrence Wong, whom I had the pleasure to chat to. He is a big supporter of new PAP measures to curb real estate speculation and increase welfare transfers to the poor. It is not fundamental change, however it is change at the margin. The PAP’s logo may have been inspired by that of Oswald Mosley’s British Union of Fascists, but the PAP has enjoyed considerably more success and longevity.

Oswald

Harry

3. So the big PAP trope just now is that the party is becoming much more touchy-feely and getting down with the labouring masses. At a public forum, many-times minister — most recently Foreign Minister — George Yeo, who became the most senior PAP figure since the 1960s to lose his seat in 2011 (‘arrogance’, said one of my taxi drivers), summed up the required shift in elegant philosophical terms. He said that Singapore must move on from ‘utilitarianism’ and seek policies that work for as many people as possible. In other words, the crude majority (assuming there even is one in the next election, in 2015) should no longer ride rough shod over the interests of minority groups, be they the very poor, Malays, whomever. He didn’t use the second philosophical designation, but what he meant is that Singapore needs to shift from utilitarianism to something more Pareto efficient, where policy gains for the majority do not come at the expense of other people.

4. Unfortunately I am a sceptic and I don’t believe the PAP will change its stripes – at least not fast enough to prevent even more trouble at the next election. At the same forum I commended George Yeo for calling for a move to a more mature, thoughtful policy framework. Then I asked him when he thinks Singapore will stop hanging people. (Singapore releases poor and patchy data, but in some years has had the highest per capita state execution rate in the world.) The response was interesting: no more new George/new PAP. He simply said that killing people has a deterrent effect and that most Singaporeans are in favour of it. This is the old PAP we know and love: not letting facts or logic get in the way of what it wants to do. First, there is no statistically robust evidence – and there are many studies – that capital punishment has a deterrent effect, so the claim to the contrary is disingenuous. Second, the logical case against capital punishment doesn’t hinge on the debate about deterrence anyway. Instead — at least for me — the sledgehammer argument against capital punishment is that you cannot guarantee in any legal system not to make mistakes; and when you do make a mistake, you cannot bring wrongly-hanged people back from the dead. I have looked in detail at miscarriage of justice cases in both the UK and the US, each of which has a better, more transparent legal system than Singapore. So when George offered the sop that he is open to looking for better ways to kill people, I wasn’t overly impressed. In reality of course, the PAP is sufficiently embarrassed at some level about its barbarism that the number of killings has fallen sharply as its political support has waned in the 2000s and 2010s; in 2012, the number of convictions subject to mandatory capital punishment was reduced.

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I was just sent a link to a first review of my new book, carried in the FT. If you want to see other reviews (assuming there are any), check www.howasiaworks.com. This one I will paste in here since it gives a pretty good synopsis of what the books is about (and, let’s be honest, isn’t entirely negative either).

Reap what you sow

Review by David Pilling

How Asia Works: Success and Failure in the World’s Most Dynamic Region, by Joe Studwell, Profile, RRP£14.99, 288 pages

Why are the northeast Asian states of Japan, South Korea and Taiwan rich, while the southeast Asian ones of Thailand, the Philippines and Indonesia are relatively poor? Is the failure of the latter because of their geography or climate, or is it because their leaders chose wrong-headed policies?

One of the many virtues of the pithy, well-written and intellectually vigorous How Asia Works is that Joe Studwell does not equivocate. South-east Asian nations have ended up on what he calls the “rubbish heap of industrialisation” because they failed to learn the lessons of history. Instead of taking what he presents as relatively simple steps to technological advancement, leaders were captured by their ruling elites or took bad advice from international institutions such as the World Bank. The latter pushed neo-liberal policies – including no protection for fledgling industries – that Studwell considers wholly inappropriate for countries trying to get on the first rung of the developmental ladder. His recommendation to poor nations is to emulate Park Chung-hee, the South Korean strongman who oversaw what became known as the miracle on the Han river: “make public pronouncements about the importance of free markets, and then go quietly about your dirigiste business.”

The measures taken by Japan, then South Korea, Taiwan and, after 30 years of Maoist missteps, communist China were, argues Studwell, threefold. They involved land redistribution, the development of an export-oriented manufacturing policy, and the formation of a closely controlled finance system. The three important development insights, he argues, are that “a country’s agricultural potential is most quickly released when its farming is transformed into large-scale gardening supported by agricultural extension services; that the technological upgrading of manufacturing is the natural vehicle for swift economic transformation … and that finance must be harnessed to both these ends”. Only the small city-states of Hong Kong and Singapore have successfully taken a different path.

The most original part of the book deals with farming. Studwell, whose Asian Godfathers (2007) dissected the failures of crony capitalism, argues convincingly that successful Asian nations were built on radical land reform. Japan began parcelling out land after the Meiji Restoration of 1868, a policy continued after the war when the US occupation oversaw a seemingly un-American exercise in land confiscation and redistribution. South Korea and Taiwan followed suit. Large farms are often considered more efficient because they can be highly mechanised to produce higher yields per farmer or per unit of investment. In other words, they are more profitable. But in poor, labour-abundant countries, Studwell contends, that is not the point. The goal should be to use available labour to maximise yield per hectare, something achieved on smaller, intensively farmed plots.

Maximising yields serves several broader development goals: farmers earn money to spend on local manufactures; higher food production means the state doesn’t have to waste precious foreign exchange on imports; and farmers’ savings can be recycled through the banking system into industry. Both the indulgent leaders of the Philippines, who left vast haciendas in the hands of absentee landlords, and Maoist ideologues, who collectivised land into unproductive large-scale co-operatives, ignored the basic insight on what he calls “the triumph of gardening”.

The sections on industrial policy and finance are more familiar, though the ideas remain controversial among free-market economists who argue that governments can’t “pick winners”. Such economists, says Studwell, misunderstand what Japan, and later South Korea, actually did. The key was to force manufacturers, whether of steel or cars, to export and thus compete on international markets. Those that couldn’t hack it were killed off. Korea, for example, had three putative car champions in 1973 at a time when local auto sales were only 30,000 cars a year. In the early years, the market leader was the now-forgotten Shinjin. Only later did Hyundai emerge as the last car company standing. “The economics of development requires nurture, protection and competition,” he writes. The alternative to such hard-headed, nationally driven policies, he says contemptuously of the Philippines, is “an authentic, technology-less Third World state with poverty rates to match”.

Studwell’s thesis is bold, his arguments persuasive, and his style pugnacious. It adds up to a highly readable and important book that should make people rethink the glib equation of free-market policies with economic success. He also writes with disdain for those who would peddle the “fairy tale” that poor countries can become rich by skipping industrialisation. Of India’s attempt to build wealth through IT services, which employ only a few million people, he says: “Punditry that likens India’s economic development to that of the more northerly countries is fatuous.”

The implication of Studwell’s analysis is that talk of globally converging living standards is overdone. Those countries that do not begin with comprehensive land reform or bully their entrepreneurs into nation-building – as opposed to rent-seeking – are bound to fail. Even the relatively successful ones won’t get further than Malaysia, he says, a country whose botched efforts at industrialisation he likens to attending school but not paying much attention.

That leaves China, which in many ways has emulated the successful northeastern model, through post-1978 land reform and the creation of state champions financed through policy banks. China’s biggest companies, he argues, are closing in on international standards in heavy industry. But consumer businesses are not. As demographics worsen and as vested interests worry more about personal gain than national development goals, he wonders whether China will get stuck.

Studwell’s book is a warning to those who believe that developing countries in Asia, Latin America and now Africa have cracked the secret of growth and will inevitably catch up with rich ones. Only those nations with good policies will make it, he argues. And good policies are out of fashion.

Isn’t life a bitch? Just when you have good use for a few tens of billions of dollars to support a bit of old-fashioned modernisation in north Africa, it turns out you spent your whole budget for the next decade on a pointless war in Iraq. Dang, America’s Mr. Obama be kickin’ himself under the table.

It is the fifteenth day of protests in Egypt and the Arabs — despite much media conjecture to the contrary — show no sign of going home and being quiet. Cash-strapped Washington doesn’t know what to do. Hilary Clinton has said she would like the (ex-intelligence service boss) vice-president to run the country until scheduled elections in September. Obama’s special advisor on Egypt says that Mubarak must stay until the election. The crowd appears to be backing outlandish demands for a representative transitional government.

Cripes. ‘Representative’ in the country that is the intellectual birth-place of Islamic fundamentalism and al-Quaeda? ‘Transitional’ in the country that has ‘Remember Algeria’ written all over it in CIA spray paint? No wonder we backed a dictator and encouraged economic policies that consign Egyptians to poverty and to an 80 percent youth unemployment rate. Why can’t we just have the same deal again?

It is really very tedious how unprincipled foreign policy comes back to bite you in the arse, like some whacked out dog you once threw a bone to. Much more of this and the Arabs will start to resemble the Persians, who are still hung up on us getting rid of their silly Mr Mossadegh, who thought he could nationalise our oil companies.

I am not terribly well read on Arab history, particularly the modern stuff, but if I were to recommend a single, highly readable and well researched tome to put contemporary Egypt in perspective it would be The Looming Tower. The Guardian contains a brief history of the main Islamic opposition group, the Muslim Brotherhood; it isn’t great and contains a very taciturn interview with a current MB leader, but it is readily available.

Much of my life (because it is part of my work) is spent reading books, but so far on this blog I have not attempted a book review. Somehow it seems apt to begin with a book about Italy, and one which has aroused extreme passions.

The Dark Heart of Italy is not an original book. It fits into a post-Second World War tradition of informed foreigners deconstructing Italy at a national, political level (think of Banfield, Ginsborg, Stille, Lane). Sometimes this goes from the local and particular to the general (Banfield); more often, it is top down.

So The Dark Heart of Italy is not so much a book in its own right as another iteration of a genre. Myself, I find this genre to be a serious one characterised by serious authors. None of those mentioned thus far is a flippant or publicity-seeking writer. (Think of the opposite tradition, typified by Frances Mayes’ romantic fantasy, Under the Tuscan Sun). The Italy deconstruction is a serious business. This applies equally to the Italians who have practised the craft: Levi, Sciascia, Pirandello, Lampedusa… Indeed, it is striking how seriously non-fiction authors treat Italy, a country that could easily be handled in critical books in the way it is in the UK and American tabloid press.

At least as interesting as the content of The Dark Heart of Italy is an attempt to understand why it elicits extreme responses. A quick read of 46 reviews on Amazon’s UK site shows the book to have 20 five-star and nine one-star verdicts. In other words, the great majority of reviewers say this is either a very good book or a very bad book.

First, however, to the content. The Dark Heart of Italy flits in an out of personal experiences of the author while he was living four years in Parma. But its narrative drive comes from a potted history of post-Second World War communist and fascist terrorism and Italy’s failed attempts to attribute responsibility for this, most particularly through the legal system.

Intellectually, Jones’ approach follows your archetypcal northern European, post-Englightenment logic: if I do enough work, and think very carefully, I will arrive at plausible, rational explanations. Needless to say, this does not happen, and much of the book details the endless paper trail that the author follows to nowhere.

Along the way, there are astute observations. On the nature of the legal system: ‘What is important is not the principle, but the points of law. Codify, recodify, encrypt. Quod not est in actis non est in mundo: anything not written down, documented, simply doesn’t exist.’ On the failure to reach decisions: ‘No one is ever entirely guilty, no one is ever simply innocent. It’s part of the rewiring process of living in Italy that you can never say, even about the most crooked criminal, that they are factually, legally guilty: there’s always the qualifier that they’re “both innocent and guilty”. Sooner or later the accusation will be dropped anyway, because the deadline for a judicial decision has been superseded.’ On the politicisation of the judiciary: ‘If you point out that the Italian parliament (of 650 senators or deputies) currently has fifty politicians inquisiti (under investigation), people simply shrug: “the magistrates must be out to get them, that’s all.”’ On the reality of a political class that changes affiliations but not personnel: ‘in 1960… of the 64 first-class provincial prefects, all but two had served under Fascism, as had all 241 deputy prefects, and 135 questori (provincial chiefs of the state police). As late as 1973, 95% of all civil servants had been appointed to the service before the fall of Mussolini.’ On the concurrent presence of political extremism: ‘”There must be a reason,” an Italian academic wrote recently, “why it was Italy which was the fatherland of Fascism and of the largest Communist party in the western world.”’ On conspiracy theories: ‘Surrounding any crime or political event, there is always confusion, suspicion and “the bacillus of secrecy”. So much so that dietrologia has become a sort of national pastime. It means literally “behindology”, or the attempt to trump even the most fanciful and contorted conspiracy theory.’ (The recent Sollecito-Knox case in Perugia, about which I blogged in February 2009 and in December 2009, bears some of these hallmarks.)

On the contrast between the beauty you see around you and the cultural condition of contemporary Italy, Jones quotes a friend: ‘What you don’t realise, what none of you British realise, is that Italy is a cultural desert. You come here to gawp at buildings and chipped statues from 500 years ago, and imagine that we’re still in that level of cultural production. Which is, of course, absolute balls: Italy’s now, culturally, completely arid. If I were you I would go back to the 50s and 60s. Switch off the television and watch some old films instead…’

And there is a good description of the celebrated Sofri case, which led to a highly questionable 22-year term for a stubborn and principled political activist for, as one journalist put it, ‘not having doffed his cap to the bureaucratic cast of the judiciary’. There is a long interview with Sofri in which the jailed man observes of the judicial system: ‘Dietrologia is the air that you breathe in Italy. It’s the result of paranoia and jealousy, and it simply exalts an intricate intelligence. It’s like Othello and Desdemona’s handkerchief: one innocent object can spark off endless suspicions. It’s a game off endless suspicions. It’s a game which people play, almost to show off. I prefer not to see a conspiracy which exists than to see one where it doesn’t.’

Finally, there is a useful outline of the origins, the playing out and the undermining of the Mani Pulite anti-corruption movement in the early 1990s. Craxi is pelted with coins outside the hotel Raphael in Rome and soon flees into exile, the public sprays town walls with exultant graffiti about the defeat of dark forces, and Silvio Berlusconi creates a new political party named after a football chant, inviting top anti-corruption judge Antonio di Pietro to be his Minister for Justice. ‘His [di Pietro’s] moralising anxiety,’ declared Berlusconi, ‘belongs to everyone.’ Today that remark seems even funnier than it did 16 years ago. Di Pietro turned him down, but Berlusconi convinced at least one other Clean Hands magistrate to join Forza Italia.

The problem with the book, I think, is that it does not clearly separate institutions from people. The realisation that Jones comes to is of the low institutional quality of Italy. But because this is bound up with the individual stories of politicians, journalists, lawyers and others, the tale becomes an unduly general one of a failed society. There is a tendency to see failed institutions as the product of a failed people. On the contrary, I think it is more accurate to see failed individuals – terrorists, corrupt politicians, egomaniacal magistrates – as symptoms of institutional weakness rather than proof of societal failure. This leaves open the possibility – to me a certainty – that in Italy’s atomised, localised and family-centric sociology there are not only people who are unsullied by institutional weakness, there are also those who react against it by becoming ‘super-moral’ contributors to society. The biggest challenge of a deconstruction of Italy, which is always drawn to critique its institutions, is not to explain why there are so many crooks, but rather why there are not more.

In addition, one has to give a nod – which Jones does not – to odd areas of institutional strength. On many trains, and in many schools and hospitals in Italy – to give a few examples – my experience is that the attitude and morale of the ‘public servants’ one encounters is often better that what I see in the UK (though I have less recent experience there). The school system has an institutional integrity that comes from not being ghettoised between state and private provision like the UK one, even if more and more people are lamenting the condition of secondary education. There are clear benefits to the less centralised institutional structure of the country, something that all major political parties in the (super-centralised) UK have been talking up in recent years. And town centres in Italy are maintained with a loving care and pride that is much rarer in the UK. These points, and others, don’t wipe out the sins of Italy’s vampiric state-linked professional classes, but the points are nonetheless valid.

And so to those wildly divergent Amazon reviews. It is notable that among those who give The Dark Heart of Italy five stars and particularly rousing praise are Italians who have moved to the UK. Among the one-star reviews, meanwhile, are slightly hysterical Italians living in Italy and English women married to Italian men.

The book deserves ratings in the middle, and this is where the more thoughtful comments are found. One that is hard to disagree with is the observation that Jones could, of course, ‘write a book called the Dark Heart of Great Britain. Where we all live in this hellish society trapped in houses by rain, where everybody is overworked, bank holidays and Sundays are spent in the shopping centre and our only escape is through the good people on the TV who will find us a new life somewhere in Tuscany, Spain or France.’ Myself, I am giving the book four stars, which is above the current average of 3.6. (It is notable on Amazon that it is very hard to get a high score for a non-fiction book on Italy.)

Blogroll

Baseline Scenario
About the US economy, mostly. These boys are not too funny (they are economists) but they put in serious hours on this site and it is worth reading. Johnson is a Brit former IMF economist with perspective. Updated daily.

John Kay
About Britain and micro-economic issues. Research-heavy analysis rather than opinion. One of the few people with really clear ideas on bank regulation, but not yet (for me) fully thought through.

Krugman
Posts multiple times a day cos he’s manic. I was at a boring conference with him where he appeared to take frantic notes. Later transpired all he had written on his pad was ‘I need a beer’, about one hundred times. Still got Nobel.

Martin Wolf (FT sub needed)
Particularly good on Europe. During his life, Wolf has fallen in love with — and then become disillusioned by — the Labour Party, the World Bank, and perhaps now globalisation. The constant is his hunger for answers.

The Big Lychee
About Hong Kong. Affiliated with Hemlock, the exquisitely misanthropic, underemployed, billionaire’s gweilo running dog. Original Hemlock files available. Updated every day, because the author has a huge salary and nothing better to do.